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401(k) Rollovers and Other Options

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Experts predict that more people than ever will change jobs in 2022. If you find yourself in that group, you might wonder what to do with the money you've accumulated in your current employer's 401(k) plan. When it comes to 401(k) planning during a job change, you generally have four options:

  • Leave your money where it is
  • Roll it into an Individual Retirement Account (IRA)
  • Cash it out
  • Roll it into a new employer’s 401(k) plan

There are pros and cons to each choice, and a Plan 4, Inc. financial advisor can help you evaluate the merits of each. Let's take a closer look:

Leaving Your Money in Your Current Employer's 401(k) Plan

The easiest, most hassle-free form of 401(k) planning when changing jobs is to leave your money where it is, in the plan managed by your current employer. If your money has done well, this might seem like an attractive option. But before you decide to keep your money parked with your soon-to-be-former employer, you should talk to an advisor from Plan 4, Inc. about the implications of this decision.

Former employees may be subject to different investment support and choices when remaining in their old 401(k) plan.  Further, you may also miss out on new investment opportunities that your old employer and old plan don't offer.

<b>Rolling Your 401(k) Into an IRA</b>

Rolling Your 401(k) Into an IRA

IRAs offer many of the same benefits as 401(k)s, but they are not managed by an employer. If you are retiring, becoming self-employed, or otherwise do not have the option of rolling your existing 401(k) into a new 401(k), rolling your retirement funds into an IRA can be a great way to maintain some of the tax advantages you had with your 401(k).

Keep in mind, however, that there are key differences between an IRA and a 401(k).  For instance, many employers match 401(k) contributions up to a certain percentage. You also can't borrow against an IRA like you can against a 401(k), and IRAs have fewer protections from lawsuits, liens, and judgments.

Cashing Out Your 401(k) Plan

Cashing out your 401(k) doesn't mean taking it in stacks of paper money — though you technically could do that. It refers to any withdrawal not involving reinvestment into another qualified retirement vehicle. If you transferred the money from your 401(k) plan to a savings or checking account, that would be a cashout. Unless you are desperate for funds, cashing out your 401(k) is generally a bad idea. Because money invested in a 401(k) plan generally hasn’t yet been taxed, you'll lose a lot of money to taxes, may incur early withdrawal penalties, and any future growth of your nest egg won't be tax-deferred.

<b>Rolling it into another 401(k)</b>

Rolling it into another 401(k)

Some plans allow employees to roll over balances in prior employer’s 401(k) plans to their plans.  This type of rollover allows you to transfer your 401(k) to a plan administered by your new employer. The benefits of doing this include potentially lower administration costs, continued tax deferment, protection from creditors, and potential access to investment vehicles not offered through your old plan. A financial professional from Plan 4, Inc. can help you determine whether this type of 401(k) rollover is right for you.

Get in touch with us today to take a closer look at the options available to you and the potential benefits of each!

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